Next basks in warmer weather and wage increases.
Leading clothing and homewares retailer Next provided a serious fillip to the UK retail industry this week when it unexpectedly released a trading update highlighting that it was performing much better than it had earlier predicted.
The company cited a combination of warmer weather and annual salary increases for many people as the driver behind its outperformance that resulted in full-price sales in the first seven weeks of the second quarter increasing 9.3% versus the same period last year. This compares with its earlier forecast of sales falling 5% over this period. This buoyant trading translates into an unexpected boost to sales of £93 million.
Along with warmer weather prompting wardrobe changes Next stated that pay rises awarded to UK workers at the beginning of the financial year in April had likely tempted consumers to hit its stores with confidence.
“In an inflationary environment, annual salary increases deliver a significant uplift in real household income at the time they are awarded. We do not think it is a coincidence that sales stepped forward so markedly at a time of year when many organisations make their annual pay awards,” the company stated.
On the back of the improved trading Next has upgraded its expectations for trading across the full-year with sales now predicted to come in £137 million higher at £4.67 billion, which will increase profits by an additional £40 million to £835 million.
This modest uplift in full-year numbers reflects the belief from Next management that the combined effects of the hotter weather and the annual wage increases represents a one-off hit and will diminish over time. It states: “We are not anticipating the current performance to continue at the same level going forward, albeit we have moderately improved our guidance for the rest of the year.”
The unexpected good news from Next helped push its shares up 5% and since the company is regarded as a bellwether of the UK retail sector and wider economy its out-performance is leading to more positive expectations for current trading at other retailers and consumer-facing organisations.